Selling WBS (now Rain) to buy Cell C

Blue Label Telecoms’ decision to buy a 45% stake in Cell C for R5.5 billion was punished by the market, with its share price plummeting from around R21.00 per share to R4.33 per share.

This share price slump shaved billions off the value of Blue Label Telecoms, and even its co-CEOs punting a successful turnaround of Cell C did not help.

The simple truth is that Cell C’s mountain of debt and its deteriorating financial situation is killing the company.

Cell C’s financial problems have reached a level where it was forced to delay its debt payments and hire consultants to probe its business practices.

Some good news is that Cell C CEO Douglas Craigie Stevenson unveiled a turnaround plan to save the company.

This plan includes a recapitalisation programme aimed at extracting greater value from its roaming agreement and optimising its network revenue and usage.

Selling WBS (now Rain)

What must sting Blue Label Telecoms shareholders is that the company sold its controlling stake in WBS, which became Rain.

In November 2015, Multisource completed its acquisition of WBS, the parent company of iBurst and Broadlink.

WBS had valuable spectrum assets, notably in the 1,800Mhz and 2,600Mhz bands which are suitable to offer LTE.

WBS’s new shareholders, which included Willem Roos, Michael Jordaan, and Paul Harris, rebranded the company and struck a roaming deal with Vodacom to monetise this valuable spectrum.

Vodacom is now paying Rain large amounts of money to serve the growing demand for data on its network.

Rain’s new shareholder and big valuation

African Rainbow Capital (ARC) bought a 20% shareholding in Rain in July 2017 – an investment which paid off handsomely for the company.

According to ARC’s interim results for the six months ended 31 December 2018, Rain is now valued at R11.65 billion.

ARC is also upbeat about Rain’s growth prospects as the company transforms into a full-service mobile network operator and becomes a major player in the 5G data market.

Rain CEO Willem Roos told MyBroadband that the company is seeing strong revenue growth from both its roaming agreement with Vodacom and its own retail efforts.

Cell C versus Rain

There is a stark difference between Cell C and Rain’s impact on their respective shareholders.

Cell C has become a millstone around Blue Label Telecoms’ neck and has contributed to a significant decline in its share price.

Since acquiring a 45% stake in Cell C, Blue Label Telecoms lost nearly 80% of its value, equating to a R15-billion loss to shareholders.

Rain, in turn, is a star performer in the African Rainbow Capital stable, which continues to increase in value.

According to ARC’s financial results, Rain’s value increased from R8.5 billion in 2017 to a current figure of around R12 billion.

Even though Rain is seen as overvalued by some industry players, it remains a much better bet for investors than Cell C.

Blue Label Telecoms comments

MyBroadband asked Blue Label Telecoms whether it regrets buying a significant stake in Cell C or selling WBS, but the company sidestepped these questions.

Blue Label Telecoms spokesperson Nicola White told MyBroadband that the company is busy with transactions to restructure Cell C’s balance sheet and re-gear the company for a new operating model.

“The transactions are progressing well and we look forward to updating the market,” White told MyBroadband.

Blue Label Telecoms share price since buying a stake in Cell C

Now read: The R16-billion Cell C blunder

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Selling WBS (now Rain) to buy Cell C